The London Stock Exchange has witnessed a historic rally, with the FTSE 100 index delivering its most impressive annual performance in over a decade and a half. The blue-chip index surged by more than 31% over the course of 2025, marking its strongest year since the recovery from the 2009 global financial crisis.
A Stellar Final Session Caps a Remarkable Year
The year concluded on a powerful note on Tuesday, 31 December 2025. The FTSE 100 climbed by 0.8% during the final trading session, solidifying its annual gains and closing at a fresh all-time peak. This final push underscored the sustained bullish sentiment that has characterised the market throughout the year, driving the index to unprecedented levels.
The closing bell on New Year's Eve saw the index finish at 10,649.23 points, a figure that represents not just a daily win but the culmination of a year-long surge. The scale of the 2025 advance, exceeding 31%, has taken many analysts and investors by surprise, far outstripping common annual forecasts and cementing a period of exceptional growth for UK equities.
Key Drivers Behind the Unprecedented Rally
Several interconnected factors converged to fuel this extraordinary performance. A significant and sustained weakening of the pound sterling provided a major tailwind for the internationally-focused constituents of the FTSE 100. For companies that generate a large portion of their revenue in US dollars and other foreign currencies, a weaker pound translates directly into higher sterling-denominated profits, making their shares more attractive to investors.
Alongside the favourable currency dynamics, a noticeable shift in the global interest rate landscape played a critical role. Markets have been buoyed by growing expectations that major central banks, including the Bank of England and the US Federal Reserve, are poised to implement a series of interest rate cuts in the coming year. The anticipation of cheaper borrowing costs tends to boost equity valuations, as future company earnings become more valuable in today's terms and businesses face lower financing expenses.
This "Goldilocks" scenario—combining a competitively valued currency with the prospect of supportive monetary policy—created an ideal environment for the index to thrive, attracting both domestic and international capital.
Implications and the Outlook for UK Markets
The record-breaking year for the FTSE 100 sends a potent signal about the resilience and appeal of London-listed companies on the global stage. It demonstrates that despite various economic headwinds and geopolitical uncertainties, the UK's premier stock index remains a formidable destination for investment.
The performance has likely generated substantial wealth for pension funds and individual investors with exposure to the market, boosting confidence in the UK's financial sector. However, analysts will be watching closely to see if this momentum can be sustained into the new year. Much will depend on whether the anticipated interest rate cuts materialise and the subsequent impact on both corporate earnings and the broader UK economy.
Furthermore, the divergence between the performance of large multinationals on the FTSE 100 and smaller, more domestically-focused companies on indices like the FTSE 250 may become a focal point. The stellar 2025 results set a high benchmark, and investors will be keenly analysing corporate outlooks and economic data to gauge the potential for continued growth in 2026.
